JATA - Spring 1991

Volume 13, No. 1

Financing Value-Added Tax Cash Flows

Robert P. Crum


Despite the numerous value-added tax (VAT) proposals considered by Administrative and Congressional policy makers, no prior empirically-based comparative study has been made of the cash-flow effects of a broad range of VATs on individual companies. Furthermore, economists and accountants have not analyzed the effects that financing those cash flows may have on neutrality. This study develops a VAT cost-of-financing (COF) model for evaluating VAT proposals from three interrelated neutrality perspectives. The analysis, which uses 1977-82 financial data, reveals that VAT forms can have markedly different COFs, can vary in the equality of their distribution of COF among companies, and can provide differential incentives for companies to alter their production functions. Some forms give companies financing benefits, but no one VAT form is found to be neutral from all perspectives. Implications for tax policy and future research are discussed.

The Effect of the Alternative Minimum Tax Book Income Adjustment on Accrual Decisions

Jeffrey D. Gramlich


This study utilizes cross sectional regression analysis to examine the effect of the corporate alternative minimum tax book income adjustment (AMTBIA) on corporate accrual decisions. Results indicate significant income-decreasing accrual behavior in 1987, the initial year of the book income levy. Further, the evidence generally supports a "big boom" hypothesis in which managers chose income-increasing accruals in 1986, the final year preceding the tax on book income. In both years, transportation and communication firms and financial service organizations exhibited the greatest modification of accruals.

Measurement of Effective Corporate Tax Rates Using Financial Statement Information

Thomas C. Omer, Karen H. Molloy, and David A. Ziebart


A number of empirical studies have used effective tax rate (ETR) measures calculated from financial statement information to examine the relations between taxes, firm decisions, and firm characteristics. This study investigates two issues relating to the use of ETRs: (1) the potential for defensible alternative measures to provide different results, and (2) the problems associated with using financial statement information to estimate tax and income.

Our results indicate that alternative ETR measures and systematic deferred tax reporting differences in the financial statements cause notable shifts in estimated ETRs. The systematic deferred tax differences have a predictable directional effect on estimated ETRs. In addition, this effect is not cancelled when comparisons between deterred tax reporting groups are made. In light of these results, researchers should evaluate the robustness of their results across alternative ETR measures. Our results also suggest that systematic differences in the financial reporting of deferred tax liabilities are related to firm size. Use of the deferred tax expense amount rather than the change in the long-term deferred tax liability in the ETR measure should alleviate this problem across alternative ETR measures.

Replication of Empirical Tax Research

Carol M. Fischer and John D. Russell


This paper describes a process for performing replications of empirical research, with the replication of Wilkie's (1988) analysis of effective tax rates as a specific case study. The paper proposes that replications can be used as an effective pedagogical device to develop the research skills of doctoral students. Further, it is argues that replications serve to promote high quality research. In describing the replication process, the paper discusses criteria for selecting a study to replicate, the planning process, data preparation, the resolution of discrepancies, and conducting the extension. The case study is presented to illustrate the process. The results of the replication, which fully substantiated Wilkie's results, are briefly described, and the results of the extension, which suggest that Wilkie's model is not as powerful for cash flow measures of effective tax rates as it is for accrual-based measures, are discussed.

The Tax Aspects of Exportation: A Decision Model Approach

Ernest R. Larkins


The purpose of this paper is to develop decision models that can be used to determine whether one of the tax-favored export entities described in the Internal Revenue Code should be utilized and, if so, which one is the most favorable. Since the interest-charge domestic international sales corporation (DISC), a tax deferral vehicle, and the foreign sales corporation (FSC) and small foreign sales corporation (SFSC), tax exemption vehicles, involve different cash flow patterns, the models consider the time value of money, among other things. The models are analyzed using different levels of selected variables. The break-even sales volume of exporters was found to be especially sensitive to profit margin assumptions and the spread between the cost of capital and the T-bill rate. Exporters that switch from a DISC to a FSC when export sales begin to increase may be able to increase the present value of their after-tax profits.

Letter from the President

To ATA Members and Visitors,

The American Taxation Association (ATA) is home to a broad group of members with interests in tax research, policy, practice, and education. We are in a time of transition that includes the ongoing pandemic; both AAA’s and ATA’s Diversity, Equity, and Inclusion initiatives; and the CPA Evolution. I thank our members Kirsten Cook, Diana Falsetta, and Annette Nellen for their service in these endeavors. I also thank Tim Rupert for his service as AAA Director focusing on Segments.

Our last mid-year meeting was virtual and could not have happened without our excellent ATA leadership. Thank you to Jeri Seidman, Mollie Adams, Bridget Stromberg, and their respective committees for their flexibility and tenacity in organizing their portions of the conference...

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Anna Catherine Fowler

In Memoriam,
Anna Catherine Fowler received her BS in accounting from the University of Alabama, after which she practiced for several years as a CPA. After moving to Texas with her husband Jim, she earned her MBA and PhD from the University of Texas at Austin.

She joined the faculty of the business school of the University of Texas in 1977 as the first female tenure track professor hired by the accounting department. She remained at UT until she retired in 2004 as the John Arch White Emeritus Professor in Business.

During Anna’s distinguished academic career, her research and teaching interests focused on estate and gift taxation. She was an active member of the AICPA’s Tax Division and the American Taxation Association, for which she served as 1993-94 president.

In 2002, Anna received the American Taxation Association’s highest honor, the Ray M. Sommerfeld Outstanding Tax Educator Award. She also received the Texas Society of CPA’s Outstanding Educator Award.

Anna and Jim made the most of their retirement years, delighting in travel all over the world. They finally settled in a retirement community in Chapel Hill, North Carolina. Even after Jim’s death in 2019, Anna continued to travel with friends, root for her beloved Alabama football team, and live her life to the fullest. She passed away peacefully on October 19, 2021.

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